XP Asset Management is betting on the growth of the ETF market in Brazil despite a challenging macroeconomic scenario. According to Danilo Gabriel, a partner responsible for index funds at XP Asset, the manager currently oversees BRL 3 billion (about USD 494 million) spread across eight ETFs. These figures represent a significant portion of the sector, which totals BRL 51 billion (USD 8.4 billion) in the country.
“We see a lot of room for the sector to grow in Brazil,” says Gabriel, noting that XP launched its first ETF in November 2020, the XFIX11, the first real estate ETF in Brazil. Today, Gabriel considers the market advanced but still developing, given the challenge of competing with the Selic rate.
“Many investors still prefer to earn between 10% and 13% on fixed-income assets without volatility in their portfolios, which makes funding ETFs more complex,” he said.
The index fund manager at XP AM explains that they aim to include sophisticated products in XP’s lineup while relying on foundational ones. “For example, we have an Ibovespa ETF. We knew we had to play this game,” he says. Gabriel notes that the industry in Brazil now offers about 100 products, 10 of which are ETFs listed on the Brazilian stock exchange.
However, XP sought a differentiator: cost.
Zero Fees and a Focus on Performance
BOVEX11, which replicates the Ibovespa, is the asset’s most famous ETF and the one with the highest funding. The secret lies in a differentiated cost strategy.
In this case, the manager adopts a zero-fee policy until the fund reaches BRL 1 billion in assets. After this milestone, a fee of 10 basis points (0.10%) will be charged.
“Our model is strategic. When the fund reaches BRL 2 billion, for example, the average total cost will be only 5 basis points (0.05%), as the first BRL 1 billion will remain free,” he explains. Additionally, the fund has an active stock lending structure, generating additional income for shareholders and surpassing the Ibovespa in terms of profitability.
Strong Performance and U.S. Exposure
This year, given the strong performance of U.S. stock markets, some asset products achieved returns exceeding 60%, attracting investor attention.
“We have a basic U.S. package that replicates the Nasdaq and S&P500 indexes, as well as a specific U.S. package,” says Gabriel.
“The Nasdaq has performed very well,” he notes, referring to the Nasd11 ETF, which rose 61.7% this year, reflecting the excellent performance of the world’s second-largest stock exchange, driven by global technological growth.
He adds that, while it is impossible to know exactly which investors are investing in the asset’s products since they are publicly traded, institutional investors are among their clientele.
“We have large pension funds investing and, at the same time, are actively working with our advisor network to promote ETF usage. We believe these are transparent, efficient, cheap, and highly liquid products, offering numerous benefits to the end client,” he says.
In addition to exposure to REITs, Ibovespa, and the U.S., XP also added ETFs with exposure to China and a gold ETF, the first in Brazil dedicated to the commodity, which Gabriel notes has become even more significant in recent years.
“It is focused on the gold market, even incorporating physical gold in its structure. With B3’s technical decision to stop operating gold tickets, our fund addressed this latent demand for a liquid, transparent asset dedicated to this sector,” he explains.
The Sector Benefits Different Investor Classes and Tends to Grow
According to Bruno Tariki, XP’s index fund manager, the asset class attracts various types of investors, offering distinct advantages to each.
“The liabilities of this fund tend to be more spread across these categories. Features like transparency and low costs, which favor long-term ownership, attract institutional investors. For retail, the ease of entering and exiting at any time, or earning extra returns by lending shares, is appealing,” says Tariki.
He notes that the Brazilian market has evolved significantly since the pandemic, growing from 14 to over 100 available products, but it still represents less than 1% of the country’s fund industry. “In comparison, in the U.S., ETFs already dominate 50% of the fund market,” he highlights.
Plans for 2025
While the primary goal is to consolidate existing products, XP is considering launching new ETFs aligned with global trends. “We are closely watching what’s happening in the U.S. market, such as cryptocurrency ETFs approved by the SEC, as well as local demands. We aim to be trendsetters, not just followers,” Gabriel concludes.
With a focus on transparency, efficiency, and low costs, XP Asset believes the ETF market in Brazil is just beginning to tap into its full potential.
